The situation in the Middle East has dominated the news since late February, when the US and Israel launched their first strikes on Iran. Since then, there has been widespread speculation about how the war will impact markets and businesses on a local and global level. The latest figures on UK GDP, inflation, employment and insolvency provide a point-in-time snapshot of the economy before the conflict escalated.

To the surprise of many forecasters, the data suggests that the economy was building some momentum before war broke out in the Middle East. However, the outlook has since shifted, with experts commenting that this might be the last good news we hear for a while.

Business confidence and employment are being dragged down by the uncertainty and cost pressures resulting from the ongoing conflict. Headline inflation rose to 3.3% on the back of the largest increase in fuel prices in over three years, and costs are expected to rise further in the coming months.

Next month’s figures will reveal more of the war’s impact on the economy. Until then, here are the latest stats.

GDP – February 2026

• UK GDP showed 0.5% growth in February, following a growth of 0.1% in January (revised up from 0%). This far exceeded the 0.1% expansion predicted by economists. The ONS has attributed this upturn to the services sector and manufacturing, which each grew by 0.5% in the month to February, and construction output, which increased by 1%.
• Over the broader three months to February, real GDP grew by 0.5% following an increase of 0.3% in the three months to January (revised up from 0.2%) and no growth in the three months to December 2025 (revised down from 0.1%).
• Production output grew for a third consecutive period, increasing by 1.2% in the three months to February 2026 compared with the three months to November 2025. This follows a growth of 1.7% in the three months to January, revised up from 1.3%.
• Overall, the construction sector continued its downward trend. Output fell by 2.0% in the three months to February 2026, following falls of 2.8% in the three months to both January and December. New work fell by 3.4%, and repair and maintenance showed no growth.

Inflation – March 2026

• The CPI rate increased from 3% in the 12 months to February 2026 to 3.3% in the 12 months to March 2026.
• Core CPI (excluding energy, food, alcohol and tobacco) rose by 3.1% in the 12 months to March, down from 3.2% in the year to February. The CPI goods annual rate increased to 2.1% from 1.6%, while the CPI services annual rate rose from 4.3% to 4.5%.
• Motor fuels made the largest upward contribution to the monthly change in both CPIH and CPI annual rates, while clothing made the largest downward contribution. Overall motor fuel prices rose by 4.9% in the 12 months to March 2026, compared with a fall of 4.6% in the 12 months to February. The March figure was the highest recorded since January 2023.
• Forecasters now anticipate headline inflation will remain high this year as a result of prolonged conflict in Iran, instead of falling back in April as economists had previously predicted. The Bank of England held rates at 3.75% in May, but its governor Andrew Bailey noted that whether rates rise further will depend on the size and duration of the shock to energy prices. Bank officials expect typical energy bills to rise 16% to £1,900 by the summer and food inflation to increase by 7% by the end of the year due to the rising price of fertiliser, energy and transport.

Employment

The latest Office for National Statistics labour force and employment data show:

• UK unemployment rates fell to 4.9% in the three months to February, the lowest level since last summer. This was a surprising decrease from the 5.2% rate in the three months to January, which economists had expected to continue into February. However, the Iran conflict will likely cause a rise in job cuts in subsequent months.
• Unemployment in the 18-to-24-year-old group fell from 14.5% to 14.3% but is still significantly higher than other age groups.
• In the latest period (December 2025 to February 2026), economic inactivity among the working population aged between 16 and 64 increased from 20.7% to 21%. This is up in the last quarter but below estimates of a year ago.
• The lowest number of vacancies since February to April 2021 was recorded for the three months to March, with estimates suggesting a quarterly decrease of 29,000 (3.9%) to 711,000.
• Annual regular pay growth continued to fall, growing by 3.6% in December 2025 to February 2026. This is down from 3.8% in January and is the lowest level since November 2020. Adjusted for inflation, annual wage growth in real terms was 0.2% for regular pay and 0.4% for total pay — down from 0.5% and 0.7% in the previous period respectively.

Insolvencies – March 2026

There was a 7% increase in company insolvencies (2,022) in England and Wales in March 2026 compared to February 2026 (1,895, amended). This rate is 1% higher than March of last year, when 1,995 corporate insolvencies were recorded, indicating that overall volumes are broadly consistent with last year. Looking at the detail, company voluntary arrangements doubled between February and March, and there was a significant increase in administrations, with 235 recorded for March 2026. This is the highest number since February 2012. This is 82% higher than March 2025, a 52% increase over the previous month and 89% higher than the 2025 monthly average. However, this increase may be a one-off event resulting from more than 100 connected companies in the real estate sector entering administration in March 2026.

Meanwhile, personal insolvencies were up by a significant 30% YoY, increasing to 12,252 in March 2026 compared to 9,420 in March 2025. This figure includes a 26% YoY increase in debt relief orders and a 36% increase in individual voluntary arrangements. Bankruptcies fell by 19%, though the Insolvency Service noted that these numbers were likely still affected by the clearing of a backlog following a move to a new case management system.

Geopolitical stalemate keeps pressure on the UK economy

Ceasefire negotiations between the US and Iran have reached an impasse, with no clear timeline for restoring trade flows through the Strait of Hormuz. With no resolution in sight, pressure on fuel costs and supply chains looks set to continue.

The effects on the UK economy are becoming increasingly hard to ignore. A report by the Item Club found that up to 163,000 UK jobs could be lost this year, driven by falling consumer spending, rising energy costs and shipping disruption, with lower-income manufacturing regions such as South Wales and the Humber expected to fare worst. The Bank of England has also warned that higher inflation is unavoidable, at least in the short term, since energy prices remain high.

Many businesses, including Foxtons, Sainsbury’s and WH Smith, have flagged concern over the conflict’s impact on consumer confidence and issued more cautious profit forecasts. Meanwhile, pressure on public finances is intensifying. Government borrowing costs hit their highest level since 1998 in May, with analysts citing a combination of Iran-driven inflation risk and domestic political uncertainty — a dynamic the International Monetary Fund (IMF) has warned will affect the UK more than other G7 nations, given its exposure as a significant energy importer.

The Middle East conflict is the dominant source of uncertainty, but not the only one. Labour’s poor showing in the local elections and questions over Keir Starmer’s future as Prime Minister have added another layer of domestic political instability that markets and businesses are also having to weigh. Conditions are likely to remain volatile, and UK businesses will need to plan accordingly to stay ahead of further shifts in energy prices, borrowing costs and consumer demand.

If you are seeking professional advice for your business, Opus is here to help. You can speak to one of our specialists, who can discuss options with you. We have offices nationwide and by contacting us on 0203 995 6380, you will be able to get immediate assistance from our Partner-led team.